Quantifying neural network uncertainty under volatility clustering

Time-series with volatility clustering pose a unique challenge to uncertainty quantification (UQ) for returns forecasts. Methods for UQ such as Deep Evidential regression offer a simple way of quantifying return forecast uncertainty without the costs of a full Bayesian treatment. However, the Normal-Inverse-Gamma (NIG) prior adopted by Deep Evidential regression is prone to miscalibration as the NIG prior is assigned to latent mean and variance parameters in a hierarchical structure. Moreover, it also overparameterizes the marginal data distribution. These limitations may affect the accurate delineation of epistemic (model) and aleatoric (data) uncertainties. We propose a Scale Mixture Distribution as a simpler alternative which can provide favorable complexity-accuracy trade-off and assign separate subnetworks to each model parameter. To illustrate the performance of our proposed method, we apply it to two sets of financial time-series exhibiting volatility clustering: cryptocurrencies and U.S. equities and test the performance in some ablation studies.

Authors

Institutions

Publication Details

Journal
Neurocomputing
Published
2024-11-07
DOI
https://doi.org/10.1016/j.neucom.2024.128816
Citations
3
Primary Topic
Financial Risk and Volatility Modeling
Type
article
Field-Weighted Citation Impact
1.62
Controls
|||
ALL TIME
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
article

Quantifying neural network uncertainty under volatility clustering

Lamiae Azizi, Steven Y. K. Wong, Jennifer Chan
3 citations
Neurocomputing
Financial Risk and Volatility Modeling
1.62
article

Quantifying neural network uncertainty under volatility clustering

Lamiae Azizi, Steven Y. K. Wong, Jennifer Chan
article en
3 citations

Abstract

Time-series with volatility clustering pose a unique challenge to uncertainty quantification (UQ) for returns forecasts. Methods for UQ such as Deep Evidential regression offer a simple way of quantifying return forecast uncertainty without the costs of a full Bayesian treatment. However, the Normal-Inverse-Gamma (NIG) prior adopted by Deep Evidential regression is prone to miscalibration as the NIG prior is assigned to latent mean and variance parameters in a hierarchical structure. Moreover, it also overparameterizes the marginal data distribution. These limitations may affect the accurate delineation of epistemic (model) and aleatoric (data) uncertainties. We propose a Scale Mixture Distribution as a simpler alternative which can provide favorable complexity-accuracy trade-off and assign separate subnetworks to each model parameter. To illustrate the performance of our proposed method, we apply it to two sets of financial time-series exhibiting volatility clustering: cryptocurrencies and U.S. equities and test the performance in some ablation studies.

NeurocomputingVol. 614
The University of Sydney (AU), Australia Bioinformatics Resource (AU)
Openalex Percentile: Top 15%
Financial Risk and Volatility Modeling
1.62
AI Navigator

Ask Laika to Summarize, Analyze, and Connect papers live on the map.

Summarize Papers & Methodologies

Extract key findings, datasets, and comparative methods across publications.

Benchmark Rankings & Visual Analytics

Rank top research institutions, authors, funders, topics, and journals by Field-Weighted Citation Impact (FWCI) and paper volume with instant charts.

Connect Distant Disciplines

Bridge topological clusters on the map to find hidden collaborative intersections.